Fintech is exploding.
It is a global industry, striving to change the future of finance.
…And the future is now. At Kurtosys, we’ve set out to cover exactly what’s happening in the financial industry the world over, one country at a time. With so many places contributing to the advancement of our digital world, each deserves their own time in the spotlight.
Following closely behind the footsteps of Latin America’s fintech leader, Brazil, is Mexico. Despite the majority of the Central American country’s population lacking a bank account, it’s high mobile penetration offers further potential for its budding fintech scene to flourish amongst advanced interest from the government.
Mexico can be attributed as exporters of some of the world’s most loved things including chocolate (hot chocolate being the Aztec ‘drink of the gods’), tamales, tequila, and the word ‘Chihuahua’, both the Mexican state and the world’s smallest dog. Mexican food in particular is a hit with many of us at Kurtosys, including myself. It just needs to be stated. Elsewhere, Mexico is known for many other grandiose things: it is around 756,000 square miles (making it the 14th largest country on the globe) and houses one of the ancient world’s most cherished structures: Chichén Itzá’s El Castillo, named one of the New Seven Wonders of the World in 2007, as well as the largest pyramid (the Great Pyramid of Cholula), the biggest monument ever constructed. Mexicans are descendants from an amalgam of ancient civilisations including Olmec (the oldest known civilisation), Maya, Aztec, as well as French and Spanish. On top of being home to North America’s oldest university (founded in 1551) and the region’s first printing press, the country’s young 128 million-strong population is rapidly expanding Latin America’s presence in the fintech world.
To get all of the hefty statistics out of the way from the offset, Statista notes that Mexican fintech’s transaction value in 2017 was US$31,512 million, expected to grow by 20.1% annually to US$65,550 million by 2021. In that same year, the number of potential users could be 107.1 million people, certainly the lion’s share of the total expansive population. This positions the Central American country as one of the world’s largest consumer markets, as well as being the 15th largest economy; the financial services industry is certainly starting to leverage that advantage. In Deloitte’s Fintech Hub Review of 2017, Mexico City is given an Index Score of 181, and a Global Innovation Score of 61. It is currently standing at 73rd in the list of Global Financial Centre Index, certainly positioning itself to ascend the rankings once financial inclusion has materialised.
The LATAM Contingent
It’s important to check Mexico’s financial positioning amongst Latin America (LATAM) as a whole; just one cog in an ever-advancing fintech machine. The LATAM countries’ formal finances as percentages of GDP are as follows:
- Panama: 79%
- Chile: 66%
- Brazil: 52%
- Colombia: 32%
- Mexico: 30%
Clearly, the financial status of Mexico is lacking in comparison to other nations. That’s hardly surprising when only 39% of the population has an account at a financial institution. It’s good to hear, however, that a shift from traditional, formal financial players to fintech newcomers allows for those lacking an account to become included in the financial fold. Mexico is, in fact, a perfect example of an underbanked country embracing new technologies.
For example, around US$215 million has been invested into the development of Mexican fintech, with the stock exchange up to US$300 million in the past seven years, as noted here. In the past ten months, the financial sector has grown by a respectable 60%, and experienced an addition of 80 fintech startups. In total, LATAM is home to approximately 700 of these startups which accounts for 25% of venture capital investment in the region’s technology industry. Most positively, Mexican startups make up 35% of all LATAM’s fintechs and the figure currently stands at 238, overtaking Brazil’s 230 which says an awful lot given Brazil’s more dominant stature in the global fintech landscape. An overwhelming 71% of these companies were found in the volcanic Capital en Movimiento: Mexico City.
The start of Mexico’s fintech revolution begins at home. The country itself attracts over 7000 active investors and 90% of fintech startups are solely internalised for the Mexican market. The remaining 10% are already expanding operations worldwide, though. It’s a perfectly rational move to internalise services currently in order to work solely on Mexico’s low banking penetration rate, but also the high internet penetration which could solve that very problem. The country is second place to Brazil in terms of mobile subscriptions, the former having 89 million mobile users utilising new disruptive products, making retail banking a most threatened sector. Over half of all Mexican fintech companies fit into the ‘payments, remittances and lending’ category, but here are growth figures for some of fintech’s various arms:
- Insurance: 114%
- Enterprise Finance Management: 75%
- Lending: 59%
- Wealth Management: 20%
- Payments: 13%
With ‘Payments’ already the forerunner in Mexico’s tech revival, fans of wealth management technologies (including Robo-advisors, for instance) would be keen to see the expansion of that sector in the coming years due to increasing smartphone usage (expected to reach more than half the population). The actual increase between 2015 and 2017 in fintech startups was a phenomenal 88%, so that seems a likely occurrence for the future.
Mexico’s entrepreneurial spirit is of note, with attribution to Mexico’s high-tech transition tending to be the year 2012, stemming from financial infrastructure put in place by government initiatives and private companies in the past 20 years, as TechCrunch highlights. There’s a low access to capital for consumer and small to medium-sized enterprises (SMEs), a large amount of untapped markets and a consistency of scalable models. Many experienced leaders with a knowledge base surrounding business and product development are available in Mexico to assist fintech evolution, including these individuals:
Silicon Valley founders:
Adolfo Babatz (From PayPal to Clip, FKA PayClip) and Adalberto Flores (From Ooyala to Kueski)
David Arana (quant fund background, CEO of Konfio); Fernando Ramos (hedge fund background, Briq); Fernando de Obeso and Vicente Fenoll (entrepreneurs, Salud Fácil and Kubo respectively); Luis Creel (pawn shop background, Cohete)
Going back to more traditional players, only two banks in Mexico utilise the services of a fintech (BBVA and Scotiabank), but many international financial institutions (particularly Spanish and American banks) have Mexican divisions, including Citibank, BlackRock, AmEx, VISA and Western Union. However, retail banks have traditionally been popular in Mexico this side of the century following an influx of mergers and acquisitions in the noughties, but the slow development of banks has meant that startups have decided to grow independently and seek funding from investors. Mexico leads in LATAM venture capital investments.
This is a trend that looks set to change, however. All major international banks based in Mexico are looking to build innovation centres and invest more in startups. BBVA Bancomer, Citibanamex and Santander, for instance, have invested 100,000 million pesos to develop mobile banking possibilities in the next three years, but also to renew branches and real estate. Elsewhere 50 new bank licenses have been granted since 2014, and the government’s National Policy on Financial Inclusion includes technology as one of seven main axes. It is the only nation in LATAM to do so.
On the subject of governmental procedures, Mexico is particularly prevalent when checking out the regulatory side of fintech.
The Mexican government drafted a bill on March 23 2017 – the Financial Technology Law initiative – which is attempting to protect consumers for money laundering, increase competition and stop the funding of extremism, as well as setting about a clear set of rules for fintech firms and reduce costs for users. The types of companies that are looking to be regulated include crowdfunding, e-payment institutions and virtual asset management institutions, according to Hogan Lovells.
The main fintech authorities in Mexico are the Secretaría de Hacienda y Crédito Público (SHCP); the Comisión Nacional Bancaria y de Valores (CNBV); and Banco de Mexico. Two representatives from each are to sit on the Committee on Financial Technology Institutions. Along with supervision and surveillance powers, the regulatory sphere which requires reformatting to accept new disruptive financial institutions worldwide looks set to be completed in Mexico. The government initiative is attempting to expand the financial market in the country by covering services that cannot be covered by traditional banks due to either limitations in infrastructure or operations. The main supervision of regulatory matters will be handled by the following: National Commission for the Protection and Defense of Financial Services Users (CONDUSEF); National Commissions System for Retirement Savings (CONSAR); and Comisión Nacional de Seguros y Fianzas (CNSF).
Otherwise regulatory matters to be addressed are maximum amounts for transactions, standards established for client and investor identification, and a proposal for the sandbox principle has also been made. Fintechs will have to be authorised by CNBV and the Committee six months after the Law is enacted.
In extremely recent news pertaining to the Bill, the Mexican Senate approved another fintech bill in December 2017 to bring local bitcoin exchanges under the eye of the Central Bank, with advising from Banco de Mexico. It is currently under consideration by the lower house of legislation, but secondary laws are expected to be built if it is passed, offering “legal clarity” for companies working in cryptocurrencies.
Given the solid governmental support and regulatory assistance, on top of investors and accelerator programmes including…
…new fintech startups look set to join these shining examples that have taken Mexico by storm, starting with KMPG’s Fintech 100 2016 entry:
#38 – Kueski – The fastest micro-lending service in LATAM, whose team come from a big data and analytics background to leverage a user’s credit history and other online information to build credit risk models. A user’s desired loan can then be approved or declined in a matter of minutes. Founded in 2012 by Adalberto Flores (CEO) and Leonardo de la Cerda, based in Guadalajara. In 2016 Kueski raised $35m, with the potential to raise $100m; this is the largest capital funding for a Mexican startup.
Kueski also featured in the 47th spot in the 2017 edition of the annual KPMG report, joined by this addition to the ‘Emerging 50’ companies:
Zaveapp – A “digital piggybank” for young people to assist in their learning of saving techniques (saving percentages of expenses, utilising group savings, adopting automatic transfers). Developed in Silicon Valley but based in Mexico City, it has recently launched in France (and affiliated with MangoPay) and plans to be the essential finance personal manager application in Europe. It serves over 30,000 users currently and was founded in 2015 by Octavio Novelo (CEO) and Pedro Calmell (COO).
Other successful disruptors are below.
Bankaool – Mexico’s first online, branchless bank, supervised by the CNBV and BANXICO. Users can open a bank account and apply for credits online. Founded in 2005.
Bayonet – A solution for financial services companies which allows them to consult a global database about an online consumer’s past behaviour and assess risk based on historic payments. Founded in 2016 by Imran Arshad and Victor Rico (CEO), based in Mexico City.
Bitso – The largest exchange for buying and selling Bitcoin, Ethereum, and Ripple for Mexican Peso. Founded in 2014 by Ben Peters, Daniel Vogel and Pablo Gonzalez, also based in the capital.
Broxel – A payments company, using a virtual (or physical) Mastercard card to pay for services from an App, online, and directly to cell phone numbers for frequent payments.
Clip – Compared to Square, the Silicon Valley fintech creation of Twitter’s Jack Dorsey, Clip is Mexico’s card reader allowing for users to accept credit card payments through smartphones and tablets. The card reader can fit into the headphone socket of these devices. Founded in 2012 by Adolfo Babatz (CEO), Vilash Poovala (CTO).
Kubo.financiero – Mexico’s leading P2P lending platform. It offers loans between US$200 to $25,000. It has created a financial community whereby investments can be made in people with very good credit history. It was founded in 2012 by Allan Seidman (COO), Tomas Hernandez (CFO) and Vicente Fenoll (CEO), based in Mexico City.
MiMoni – An online lending platform which analyses loan requests and allows for memberships. Users can make biweekly payments based on their loans from authorised places such as Oxxo, Bancomer, Banamex and Banorte. It was founded it 2008, based in Mexico City.
LATAM’s promising nation of Mexico, once certain new laws have been implemented to impact its ever-growing fintech sector, is looking to burst onto the global scene, offering much competition to the worldwide fintech phenomenon.
If you have any thoughts about Mexican fintech, let us know in the comments below, or you can tweet us.